How does capital gains tax work?

[Bill Douglas]

How does capital gains tax work in your area?

Here in New Zealand we pay a (sort of) capital gains tax if we buy a house and sell it within two years for a profit. The profit is treated as if it was part of the person's gross income for that year.

Other than that after two years if you sell the place the money is yours - no tax.

I don't know about in the US or if different states have different capital gains tax rules, but I heard something like you pay tax on a property's increase in value even if you haven't sold it?

[Borders Reivers]

In the USA if you have money, it belongs to the govt.

[speeder]

Property taxes can definitely go up in the U.S. if your house goes up in value, though in CA. there is a law passed in the late '70s that sort of locks it in or only allows it to go up slowly until you sell. When a property changes hands, it is reassessed and taxed accordingly until it sells again.

It was a law designed to protect retirees from tax increases that could potentially drive them out of their house during a previous RE boom, (we have a lot of those here). If you sell your house and roll the $$ into another house within a certain period of time, no tax on sale of house if not mistaken. Someone with better knowledge can pipe in maybe.

[speeder]

Originally Posted by Borders Reivers

In the USA if you have money, it belongs to the govt.

Oh, bullschit.

If you can't figure out how to prosper in this great country, you're a hopeless loser my friend. Where pray tell is it better in your addled imagination?

[Borders Reivers]

Originally Posted by speeder

Oh, bullschit.

If you can't figure out how to prosper in this great country, you're a hopeless loser my friend. Where pray tell is it better in your addled imagination?

Having owned my privately-held manufacturing company since 1982, that's thirty-five years to you, I can tell you Asia is a great place to do business.

Dumbass

[speeder]

Yes but would you rather live there? I have family w factories in Asia but live happily in the good old USA.

Genius.

[Borders Reivers]

Thailand is heaven. On my short list for retirement.

Of course you haven't been around the block far enough to get over your xenophobia.

[look 171]

Originally Posted by speeder

Property taxes can definitely go up in the U.S. if your house goes up in value, though in CA. there is a law passed in the late '70s that sort of locks it in or only allows it to go up slowly until you sell. When a property changes hands, it is reassessed and taxed accordingly until it sells again.

It was a law designed to protect retirees from tax increases that could potentially drive them out of their house during a previous RE boom, (we have a lot of those here). If you sell your house and roll the $$ into another house within a certain period of time, no tax on sale of house if not mistaken. Someone with better knowledge can pipe in maybe.

1031 exchange. Roll the earnings, or purchase another house of equal value or higher (final sales price of the old not earnings) to avoid capital gains tax. This can be done over and over again until you finally sell. Then, they will calculate all your earnings from each and every house and tax you on that. I still believe that's still taxed as long term investment and not income. Problem is that your down payment or whatever cash you invested in this house(s) is tied up and never be able to take it out unless you are willing to pay the IRS

[ossiblue]

Originally Posted by speeder

Property taxes can definitely go up in the U.S. if your house goes up in value, though in CA. there is a law passed in the late '70s that sort of locks it in or only allows it to go up slowly until you sell. When a property changes hands, it is reassessed and taxed accordingly until it sells again.

It was a law designed to protect retirees from tax increases that could potentially drive them out of their house during a previous RE boom, (we have a lot of those here). If you sell your house and roll the $$ into another house within a certain period of time, no tax on sale of house if not mistaken. Someone with better knowledge can pipe in maybe.

The question was about capital gains, not property tax, so only your second paragraph applies. Before 1997, selling your primary residence and buying a new one of equal or greater value within two years, avoided the capital gains tax. Sellers 55 or older could opt to take a one-time $125K exemption to avoid the tax. After 1997, the law allows the seller to exempt $250K ($500k for joint tenants) upon the sale but does not allow avoidance by putting the gains into a new property. This exemption can be used every time a primary property is sold.

As an example, if a single seller has a gain of $500K on the sale, the old law would allow him to plow it all back into a new house without any tax. The current law means that he can deduct $250K from his gain, but will owe tax on the remaining $250K. (Typo edited and corrected as pointed out by nota.)

For those of us in high market areas who have lived in the same house for a long time, the new law stings us as we cannot even buy a new house of equal value without paying capital gains tax because of the extreme appreciation of the home.

1031 exchanges apply to investment properties and defer the tax

[Bill Douglas]

Thanks Guys. that makes sense. And I no longer fear.

We have elections coming up shortly, and the opposition are talking about implementing a harsher form of capital gains tax to sort out those types who have done quite well out of real estate, don't really put in an honest days work, and contribute very little to the country's tax take.

[Bob Kontak]

Originally Posted by Borders Reivers

Thailand is heaven. On my short list for retirement.

Of course you haven't been around the block far enough to get over your xenophobia.

How about you and your manufacturing company get the hell off this forum.

You are an effing cancer.

Get it?

You suck and your kids are ugly.

You pompous scum bag. FOAD.

Have I made myself clear, Mr Big stuff? Mr 150 post, I'm in charge.

With respect to your response, KMFA.

Pussy.

[nota]

it is 250k tax free 250k taxed at 15% not 125k

so move out convert the house to rental investment and then sell
and use the like kind investment dodge
our tax laws that so many here declare too tough
have lots of loopholes

the fact unearned wealth is taxed only at sale
and then at a far lower rate then worked for income
is WRONG TWICE

[Tobra]

How do capital gains taxes work in my area? They work to discourage investment. For the most part, capital gains are income that is taxed twice.

Actually LJ, he did mention property taxes in the OP, and they vary by state.

[ossiblue]

Originally Posted by Bill Douglas

Thanks Guys. that makes sense. And I no longer fear.

We have elections coming up shortly, and the opposition are talking about implementing a harsher form of capital gains tax to sort out those types who have done quite well out of real estate, don't really put in an honest days work, and contribute very little to the country's tax take.

One more thing I had forgotten. When a home is passed on to someone after the death of the owner, the home is given a "stepped up" value to reflect the current market. If the heir uses the home as the primary residence, capital gains will be calculated from the higher value at the time of inheritance, so a sale soon after acquisition will likely have no tax liability.

[ossiblue]

Originally Posted by Tobra

How do capital gains taxes work in my area? They work to discourage investment. For the most part, capital gains are income that is taxed twice.

Actually LJ, he did mention property taxes in the OP, and they vary by state.

You're right, it's in his last sentence and I interpreted it as a misunderstanding of capital gains. Now I see it was a description of appreciating property tax assessments.

My apologies to speeder.

[ossiblue]

Originally Posted by nota

it is 250k tax free 250k taxed at 15% not 125k

so move out convert the house to rental investment and then sell
and use the like kind investment dodge
our tax laws that so many here declare too tough
have lots of loopholes

the fact unearned wealth is taxed only at sale
and then at a far lower rate then worked for income
is WRONG TWICE

Thanks for finding the typo, nota. Edited on your behalf.

[jyl]

If someone buys a house for $200K and sells it for $1MM, I'm not feeling too badly that they have to pay 15% x ($1 MM - $200K - $250K) = $82,500 and receive $717,500 in after tax profit. I mean, I need a microscope to find that violin.

[speeder]

Originally Posted by ossiblue

You're right, it's in his last sentence and I interpreted it as a misunderstanding of capital gains. Now I see it was a description of appreciating property tax assessments.

My apologies to speeder.

No worries. I clicked on this thinking that he was going to be asking about the stock market, not RE. I really don't mind any response here as long as it isn't downright nasty.

[speeder]

Originally Posted by Bob Kontak

How about you and your manufacturing company get the hell off this forum.

You are an effing cancer.

Get it?

You suck and your kids are ugly.

You pompous scum bag. FOAD.

Have I made myself clear, Mr Big stuff? Mr 150 post, I'm in charge.

With respect to your response, KMFA.

Pussy.

Don't hold back, Bob. Let him have it.

[pwd72s]

Originally Posted by Bill Douglas

Thanks Guys. that makes sense. And I no longer fear.

We have elections coming up shortly, and the opposition are talking about implementing a harsher form of capital gains tax to sort out those types who have done quite well out of real estate, don't really put in an honest days work, and contribute very little to the country's tax take.

Would this harsher rate apply to other forms of capital gains as well? Stock Sales, sales of collectable items, etc? Why take an investment risk in order to give more to the politicians? This shrinks investment capital. Ever get a job offer from a poor man?

Sure sounds like just more taxes to me. Voting to increase a tax on others is a foolish game, but the politicians have learned to use it well. "Tax the rich" is a common refrain. The fool voters never figure out this won't help their lot a bit, but it sure gives the government more money to make our lives miserable with.